Economic Inequality and Political Inequity

This post by the late Gary Becker discusses the different because income inequality and issues of equity. Titled “Contrived Inequality and Equality” the post looks at legislation and regulation that creates income differences by treating people unfairly, and contrasts these to cases of income inequality created by market processes. Becker is contrasting income inequality from economic causes with income inequality from political and regulatory causes.

The media and many intellectuals have greatly criticized the large growth in inequality during past 30 years in countries as different as the United States, China, and Brazil. Yet people in all countries generally accept, and usually admire, differences in incomes and wealth that they believe result from abilities and hard work, and where the work done by the wealthy is considered socially valuable. 

Next Becker gives examples of government policies that increase income inequality in Mexico, Russia and China. Among other interventions, he says tariffs contribute to income-inequality:

Government policies that favor some individuals and discriminate against others are the biggest source of contrived inequality. … Tariffs on goods like sugar and ethanol, and subsidies to the oil and other industries, artificially raise the incomes of capital and workers employed in the protected industries.

Becker also notes union policies artificially increase income inequality between union and nonunion workers, and decrease income inequality artificially within union occupations (blocking merit pay for teachers, for example).

Becker’s summary:

Since Rousseau, many intellectuals have been opposed to inequality per se. Most people, however, distinguish deserving from undeserving inequality. Clearly, much of the income and wealth inequality in any country would be considered deserving because it results from greater abilities and dedication. Yet a considerable fraction of the inequality in most countries would be considered undeserving. Governments are expected to reduce these obstacles, but unfortunately, governments also create many of the undeserved sources of inequality.

(For further reading about Gary Becker, see links here in Don Boudreaux’s Cafe Hayek post.)